Letters to the Hill

Standard Reinsurance Agreement

The Independent Community Bankers of America1 is aware that the Federal Crop Insurance Corporation (FCIC) and the Risk Management Agency (RMA) must inform the crop insurance companies, which are parties to the Standard Reinsurance Agreement (SRA), by December 31, 2002 of the intent to cancel the agreement and renegotiate the contract. In light of the current circumstances in the industry and that RMA Administrator Ross Davidson has been at the helm of RMA only since March, we strongly urge you to not cancel the SRA this year.

Crop insurance is a critical risk management tool for farmers and ranchers. The crop insurance program is also very important to thousands of agricultural lenders, who often encourage their farm customers to take out crop insurance to mitigate the impact of a severe weather disaster and better enable producers to repay their loans. Crop insurance is therefore essential collateral backing many farm loans.

The recent development of American Growers Insurance Company, the largest writer of federal crop insurance, being placed under an Order of Supervision by the Nebraska Department of Insurance has placed considerable demands on RMA and will undoubtedly reorder its priorities. RMA must now spend considerable resources to insure that producers' 2002 claims are processed and paid as expeditiously as possible and that 2003 policies are properly and orderly transferred to maintain confidence in the program. RMA has limited resources and it will be severely stretched to deal with this situation.

We are very concerned that if RMA is forced to begin renegotiations of the SRA, producers' interests will be jeopardized. The drought conditions have placed considerable financial strains on farmers and ranchers. They desperately need their crop insurance claims to be paid as quickly as possible so they may begin securing operating loans and purchasing their inputs for their spring crops. Farmers, lenders and the entire rural economy in agricultural areas are dependent on a successful crop insurance program. We urge you to allow RMA to dedicate its resources to the present situation, rather than taking on the difficult task of SRA renegotiations.

Administrator Davidson has only recently been able to fill key personnel positions. We are confident that Mr. Davidson's leadership and expertise will guide the crop insurance program through the numerous complicated pending challenges before the agency. These challenges include: problems surrounding the failure of American Growers Insurance Company, reorganization of the agency, training of new staff, substantial polices changes related to finalizing regulations to implement the Agricultural Risk Protection Act of 2000, and the many demands of dealing with major drought problems that have impacted farmers and ranchers.

In addition, it is likely that Congress will want to closely scrutinize the condition of the industry given AmAg's failure and will again face a major push for disaster aid legislation during the 108th Congress.

Therefore, we are quite concerned that the RMA staff and Administrator Davidson will not have sufficient opportunity and resources to deal with the present crisis, assess the problems and implement appropriate solutions, and deal with several other complex issues that will undoubtedly be on RMA's plate in the weeks and months ahead.

This is simply not a good time to add the task of renegotiating the SRA to the RMA's and industry's workload. In light of the many challenges that RMA is presently facing, we would strongly urge you to not cancel the SRA this year. This would allow RMA to make sure that producers' claims with AmAg are paid and policies are properly transferred to another SRA holder while dealing with the many other pending issues mentioned above.

We look forward to working with you and the industry on these issues as they unfold. Thank you for your attention to this letter and for consideration of our concerns. If you have any questions regarding this letter, please contact Mark Scanlan, director of agricultural finance, or Richard Gupton, deputy director of agricultural finance, at 202-659-8111.

Sincerely,

A. Pierce Stone
Chairman

1 ICBA is the nation's leading voice for community banks and the only national trade association dedicated exclusively to protecting the interests of the community banking industry. ICBA has 5,000 members with branches in 17,000 locations nationwide. Our members hold nearly $511 billion in insured deposits, $624 billion in assets and more than $391 billion in loans for consumers, small businesses, and farms. They employ more than 239,000 citizens in the communities they serve.